Since last September, the insurance industry, particularly the life insurance space, has been subject to a host of measures the Insurance Regulatory and Development Authority (IRDA) introduced to safeguard policyholders' interest.

After the Ulip guidelines, IRDA banned universal life plans because of the exorbitant charges associated with them. The regualtor subsequently issued new norms, capping the charges on universal life plans, too. Before the ban, only Reliance Life, Max New York Life, Aviva India and Bharti-AXA Life were selling such policies.

Till recently, post the new regulations, which came out in November 2010, only LIC had a universal life plan, now rechristened variable insurance plans (VIP) as per IRDA's diktat. But, last week, private life insurer SBI Life, too, launched its VIP SBI Flexi Smart.

THEN AND NOW

Universal life plans are essentially promoted as products containing the best of both traditional plans (guaranteed return) and Ulips (transparency in charge structure). The plans came under the regulator's scanner when some life insurers started pushing them after charges related to Ulips came down significantly.

As against the relatively low charges in Ulips, some universal life plans had built-in charges close to 80% of the premium in the first year. To put an end to the regulatory arbitrage being exploited by the insurers, IRDA put a limit on the charges of universal life plans, too. "The key difference between universal life plan (the earlier form) and VIP (the new form) is the charge structure. IRDA capped the charges and also prescribed the manner in which the charges would apply," says Sanjeev Pujari, appointed actuary, SBI Life.

Now, the maximum expense charge that can be levied in the first year is 27.5%. In the second year, the charge reduces to 7.5% and from the fourth year onwards, it comes further down to 5%. The guidelines also instruct the companies to make it clear that VIPs will be available only as non-linked plans (and, hence, not the same as Ulips), to remove confusion in the insurance-seekers' minds.

source :- The Economic Times